J&J Unit Files for Bankruptcy to Advance $10 Billion Talc Settlement, Reports Reuters

By Dietrich Knauth

A subsidiary of Johnson & Johnson has filed for bankruptcy for the third time as the healthcare conglomerate seeks to finalize a proposed settlement of approximately $10 billion. This agreement aims to resolve tens of thousands of lawsuits claiming that the company’s baby powder and other talc products caused cancer.

J&J is currently facing lawsuits from over 62,000 individuals who allege that its talc products contained asbestos and led to ovarian and other forms of cancer. To address these legal challenges, the J&J subsidiary, Red River Talc, sought bankruptcy protection in a federal court in Houston.

The company has consistently denied these allegations and maintains that its products are safe. Erik Haas, J&J’s global vice president of litigation, stated that the proposed settlement is "fair and equitable to all parties," noting that 83% of current claimants endorsed it.

However, the settlement has prompted a divide among attorneys representing cancer victims. Opponents of the settlement plan to swiftly request the court to dismiss the bankruptcy or transfer the case to New Jersey, where previous attempts by J&J to terminate the litigation using a "Texas two-step" bankruptcy strategy were unsuccessful.

Attorney Andy Birchfield, who opposes the settlement, criticized J&J for allegedly manipulating the bankruptcy system to undercompensate cancer victims. He argued that the vote was a fraudulent tactic aimed at minimizing the legitimate claims of those suffering from ovarian cancer.

Conversely, some attorneys, including Allen Smith—who had previously represented 11,000 claimants in collaboration with Birchfield’s firm—expressed support for the settlement. Smith emphasized that the proposal offers "reasonable and fair compensation" for his clients and highlighted the urgency of getting them compensated promptly.

The strategy employed by J&J involves transferring liabilities to a newly formed subsidiary that subsequently declares Chapter 11 bankruptcy. This process aims to facilitate a global settlement that could eliminate all related lawsuits without requiring J&J itself to file for bankruptcy. Bankruptcy judges have the authority to enforce such settlements, which can permanently halt ongoing litigation and prevent future claims.

If a settlement is reached outside of bankruptcy, J&J could still face lawsuits from holdouts or future plaintiffs, putting the company at risk of substantial jury awards that motivated its decision to utilize the two-step strategy in the first place.

To bolster its chances for a successful third bankruptcy filing, J&J requested plaintiffs to vote beforehand on the proposed deal, seeking over 75% support to secure implementation by a bankruptcy judge.

The current bankruptcy effort is distinct from previous ones as it specifically targets claims related to ovarian and other gynecological cancers. This approach builds on earlier settlements made by the company with state attorneys general and individuals who claimed to have developed mesothelioma, a rare cancer associated with asbestos exposure.

The proposed settlement aims to provide talc claimants with approximately $10 billion over 25 years, with the present value around $8 billion. J&J has recently agreed to contribute an additional $1.1 billion to the settlement fund and cover $650 million in legal fees for attorneys who had opposed the initial settlement proposal.

The company remains embroiled in a contentious battle with lawyers challenging its third bankruptcy settlement attempt. J&J’s strategy still confronts significant legal obstacles, including a U.S. Supreme Court ruling related to Purdue Pharma’s bankruptcy, dismissed previous bankruptcy attempts, and potential federal legislation designed to prevent financially stable companies like J&J from leveraging bankruptcy protections.